Are high house prices in Silicon Valley pushing businesses out?

Shortages of both residential and commercial supply forces workers and businesses to flee high-priced California markets for lower prices elsewhere.

California house prices are very high because we endure a chronic shortages of housing. We aren’t in a house price bubble because the two alternatives for obtaining housing, rent or ownership, balance. As long as the relationship between renting and owning is balanced, the market for both is as stable as the overall economy.

The weakness in this analysis is that it assumes either renting or owning is affordable, but if neither one is affordable relative to incomes, the market can be very unaffordable despite the balance between ownership costs and rent.

I wrote that chronic shortages of housing supply inflates California house prices. When there are more jobs than houses or rentals, people are forced to bid up house prices and rents in order to obtain housing. This forces people to substitute down in quality and move further away from job centers, and it prices out the lowest bracket of wage earners, forcing them to live with multiple families in the same house or put upwards of 50% of their income toward housing, lowering everyone’s standard of living. This downward substitution effect lifts house prices at every level of the housing ladder and prices out the lowest tier of the housing market.

This phenomenon has been going on for so long, that most Californians resign themselves to the idea of living in lesser quality housing than they could obtain elsewhere based on their income. The tipping point comes when businesses no longer want to play along. When businesses relocate — and take jobs with them — then California’s high house prices weaken the entire economy, which is where we are today.

At a recent conference, the founder of one technology titan asked another if it was even possible to build a platform-technology company outside of Silicon Valley. It was a fair question, given the dominance of Google, Facebook and Apple. But from where I sat, it seemed easier to build a company of that size today almost anywhere except Silicon Valley.

Others have had the same thought. A spate of start-ups and now venture funds have recently left Silicon Valley for LA (Snapchat), Chicago (Keepsake), Seattle (Sherbert) and even Ohio (Drive).

The company where I work, Redfin, understands this impulse better than anyone. We are real estate brokers, with technology used by 10 million-plus people each month looking to move. And the simplest trend we see in American life is that Silicon Valley is no longer just the place talented people move to; it’s the place those people are moving from.

In 2011, 1 in 7 people in the Bay Area searched Redfin.com for homes outside of the Bay Area. Now it’s 1 in 4. As Adam Wiener, our chief growth officer, announced to other executives last month: “The dam has broken.”

In the past four years, the number of Bay Area people searching for Seattle homes has quadrupled; for Portland homes, that number has quintupled. For every 13 Bay Area people searching for a home, one is now searching in the Pacific Northwest alone. …

The chronic shortage of housing that inflated house prices historically forced out the lowest rungs of the housing ladder. If the working wage barely covers rent, working for less somewhere else where housing is affordable greatly improves quality of life, so people leave. What’s unique about the phenomenon described above is that it’s not just the bottom of the housing ladder that’s decided the high cost of housing is so detrimental to quality of life that they are leaving.

Folks are leaving Silicon Valley, mostly because they can’t afford to stay. For the first time ever, the median price for a Silicon Valley home just exceeded $1 million. That’s about double what it is in other tech cities, like Boston or Seattle, and triple what it is in aspiring technology hubs, like Portland, Denver or Austin. …

According to compensation data company PayScale.com, Silicon Valley engineers earn nearly 50 percent more than their Boston counterparts; in Seattle that difference is smaller, but still significant, at 12 percent. Nowhere is the pay difference large enough to offset the cost of housing.

As long as the shortage of housing persists, this will not change.

The shortage of housing causes people to take pay raises and bid up rents and house prices. No matter how large the pay differential gets, it will never overcome the problem with the cost of housing because the added pay will contribute to the problem.

If we had a free market without artificial barriers to new construction, builders would react to higher prices by providing more supply; however, growth restrictions prevent builders from providing more supply, so prices just keep going up and up and up.

Salaries aren’t the only costs that are lower in other places. Silicon Valley commercial rents are nearly double what they would be in Denver or Portland, and 50 percent higher than Austin or Seattle. For a 100-person office, the difference is $400,000 a year, lowering operating expenses by about 2 percent; in a typical software company with 15 percent margins, this difference is significant.

Many high-tech businesses are starting to worry about the rent: When we asked a CBRE broker, Owen Rice, for this data, he wrote back with a funny-that-you-should-ask email, noting that “more and more we are creating multimarket analyses for our clients,” including those based in a suddenly more expensive Seattle, as well as the Valley.

The same growth restrictions that prevents residential real estate costs from coming down also inflates commercial property costs. Shortages that cannot be remedied by market action will cause both residential and commericial prices to rise until the substitution effect causes workers and businesses to locate somewhere else.

Now of course, Silicon Valley isn’t going to empty out. Its population remained constant over the last decade and will remain so again in this one. More people will come here, but more will leave, too. The result will be the Valley-fication of America, a form of gentrification more extreme than most of America has seen before, with high-tech jobs, high incomes and more expensive coffee, yoga studios and—yes—houses, too.

The increase in home prices since 2012 did wonders for bank balance sheets, but it did nothing to help consumers or the economy. Future homebuyers must pay significantly more to buy houses, and the extra money going to payments is not be circulated in the local economy to buy goods and services. Higher rents and higher home prices benefits existing landowners and bankers at the expense of everyone else. But despite the problems higher house prices create, few want the system to change, so Californians will continue to struggle with high housing costs, probably forever.

The cream of the crop tech workers are making $300K and higher when you include all of the stock options and company stock. This is what is supporting high home prices in the Bay Area. Homes in the prime areas go pending in a few days with 10-20 offers and closing prices $50K-$300K over asking.

What this article fails to realize is it’s extremely difficult to be successful at a tech startup anywhere.

Your probability of success goes up dramatically in the Bay Area due to talent and access to capital… But you are still at a less than 3%-5% probability realistically. Employee cost and rental cost are very low vs the opportunity cost.

This article is mostly talking about the bottom of the barrel tech worker who may not even be an engineer. What options do those people really have? They have good jobs in the Bay Area making considerably more that may not even exist elsewhere.

People don’t fully understand cost of living adjustments. A 15% adjustment up allows you to purchase a house 50% more. A 50% cost of living adjustment as cited in this article allows 2.5-3 times high housing prices.

For these companies these cost are very minor expenses. Basically SG&A may go up from 12-14% but margins are outrageously healthy.

STEM companies are very UNhappy to pay people more unless you are talking about the CEO and other top corporate officers listed.

There exists all-out war against high wages in STEM for years now. Top execs pull millions per year in compensation for exceeding cost-cutting goals, and move on after feigning “survival crisis” while intentionally gutting capabilities continually running heroic STEM companies into the dirt, laying off, loading people double without compensating and selling the companies every few years after they pull out their millions while making the companies APPEAR TO BE very profitable.

Execs can move on and do it all over again, or retire early on their millions, as big-reputation cost cutters. Sometimes they fail alienating customers and are forced into retirement early.

All STEM jobs are short term now and the employees should either be renting or living and working away from the home. –prepared at all times to relocate to the next position or end your career as a worker.

Essentially the STEM industry has fallen to these carpetbagger exec-thieves that really belong in prison. Possibly gullible investors are mislead by metrics which are ruthlessly rigged. I say prison for them because they leave a trail of wrecked lives and businesses behind them everywhere they go in their private jets. This is not a sustainable industry model, this is death throes of STEM on our shores. Next step is abusing compliant and corrupted government to provide a glut of H1B visa people to keep the scam going just a little bit longer until the game gets outlawed. –jobs are being destroyed continually and labor is trending toward zero and millions of people every year are desperately turning to cottage industry as a last resort before disappearing into street-level poverty.

The game will get outlawed after the trail of scorched earth left behind becomes so visible that corrupt government can no longer paint a different picture of unfortunate times on the wreckage of our infrastructure. But we must get a better Supreme Court appointed with strong imperative to strengthen our consumer base before the idea of middle class disappears as “unforeseeably” as property values did in 2007.

Perhaps it is fortunate that there exists a big spoiled war industry that must have a certain amount of STEM activity on our shores to keep up their “gravy train” of never ending wars. They didn’t get their way on Syria, no return to Iran yet either. There are some new lies about Iraq that look lucrative for near term war profiteering.

The situation would improve immediately if we pass laws to illegalize and claw back certain types of compensation, or if we could get money out of politics somehow. As it is the public good is outvoted by the big money in politics and our voices are neutralized.

FWIW my perspective is from 3+ decades inside of most of the major war industry companies. Things are completely different than they were in 1970’s and 1980’s.

While what you says makes sense, I first read almost EXACTLY the same analysis in 1983. Thirty-two years ago. I’m sure the article I read wasn’t the first written.

It seems like predicting the downfall of Silicon Valley is a cottage industry, yet the engine of innovation keeps turning.

Why doesn’t the Valley have any competition in terms of tech? The first boom in Silicon Valley was in the 1960s. More than fifty years ago. Many places have tried to make themselves the next “Silicon Valley”. Most have failed, some have succeeded for a while then flamed out (Boston) and a few are reasonably successful at it (Austin & OC). Yet Silicon Valley is still the place to beat after all these years…

High house prices and a lack of housing stock won’t necessarily cause the demise of Silicon Valley, but it’s finally reached the stage where growth must stop. No matter how good the idea, it takes warm bodies to implement it, and if those warm bodies don’t have a place to sleep, the activity will move elsewhere to the degree it must in order to continue. Silicon Valley will go on, locked in amber at its current size.

Well, if we’re talking about “huge piles of cash,” then stock options (qualified or non-qualified) don’t provide much of a “nice tax rate.” If you’re making good money and your household is in the top 10% nationally, and especially if you’re in CA, then you’re subject to AMT every year.

You can’t exercise and hold options intending to pay the capital gains rate (15%/20% federal, 3.8% ACA + 9.3%+ CA = ~33%) after holding for more than one year, because you have to pay AMT tax on the “gain” at exercise (28%). You can possibly recoup this “pre-paid” tax later, but not if you’ll be consistently in the AMT going forward as most higher earning CA households are.

In other words, stock options are great, but not necessarily for tax purposes when we’re discussing higher earners – the type of people who will typically receive big options.

I concentrated on federal income tax in law school and study it carefully today, as these issues are personally applicable. Stock options are a form of “deferred comp” because you don’t have to do anything with them for a long period, but the option does expire at some point.

However, once you decide to convert sell, or exercise and hold, there are tax consequences, as I described above. There are strategies you can use to slightly affect the tax rate you’ll pay, but “slightly” is the key word here.

For example, if you know that your AGI will drop significantly in the near future (you’ll be retiring, your spouse is leaving the workforce to stay home with the kids, etc.), you can exercise them in this year when your income drops out of the AMT.

If your household income is in the ~$200K range, and not the $400K+ range, then you can harvest portions of options annually which will result in less tax paid than if you sold all options in one year.

If you think you’ll be moving out of CA in the near future, you can wait to sell when you’re in another state with no/low income tax.

None of these scenarios considers the risk that the share price could fall while you’re trying to slightly lower your tax burden. Don’t let the tax burden wag the dog.

At any point here, you’re welcome to provide details about how you minimize taxes on employer-provided stock options. I’m willing to learn. Otherwise, I’ll presume your level of household income and level of stock options exercised and/or sold to date, isn’t high enough for you to have run into the issues I’ve described.

Tech companies can be very generous with ISOs, NQOs, and RSUs. It’s a retention tool. They award grants every year that vest over four years, and if the share price is growing, it becomes very difficult to walk away from your un-vested shares to join another company offering a better comp package.

For example, a tech employee might have a $150K salary, but receive grants each year of NQOs and RSUs. When the NQOs vest, we can consider this part of the borrower’s wealth; but when the RSUs vest, this is income to the employee with wage income tax consequences. These grants typically vest over a four year period. If you’re receiving a grant each year, then every year you can have as many as four layers of RSUs vesting each year. If the company’s share price is rising, these amounts can be large relative to the employee’s salary.

So creditors treat vesting RSUs as income for purposes of qualifying the borrower? Is the average over the last two years taken? Is there an assumption that the employee will continue to receive annual grants if they received such in the last two years?

Fannie Mae will consider employee-awarded stock options on an extremely limited basis. The rules are very specific and the process of documenting them is also very specific, which disqualifies the majority of cases. In addition, many lenders have their own overlays and won’t even consider them.

If you make it past all of that, there are compensating factors to lower the overall risk of the loan. This is because stock options are considered a high-risk source of income. I believe the max LTV is 70% and there is also a minimum FICO that is higher than normal.

Keep in mind, these are Fannie guidelines. Jumbo lenders can do whatever they want, but in general they are going to be even stricter than the GSE’s, since we’re talking non-government guaranteed risk here. Still, maybe you could find a portfolio jumbo lender in the Bay area that specializes in these situations (or have a broker search for you).

Thanks for the response. I’m just curious about this stuff. We’re not stretching on this purchase, so there’s no need to worry about using non-wage income to qualify (front-end DTI on PITIA should be 20% of combined base salaries, not including any other comp).

“Homes in the prime areas go pending in a few days with 10-20 offers and closing prices $50K-$300K over asking.”

Exaggeration … According the most recent Dataquik report, the Bay area and Southern California home price appreciation rate is nearly the same. And, it has been for the last several reports.

This comment overstates the strength of the Bay area relative to Southern California. If you want to exaggerate, you can redline SF directly to pump inflated price statistics, but you can also redline Westside Los Angeles to pump pump more inflated statistics.

Both markets are very strong. Southern California has more impoverished areas which bring down the average. But prime areas in both areas are seeing the same high demand and price jumps.

I get about 3 or so linkedin messages from recruiters asking me to relocate to the Bay Area. Some of these are coming from southwest Asian bodyshops (which especially makes me laugh.) There was a comment in the USCIS page from an H1B saying he needed the new policy from Obama allowing spouses of H1Bs to get fake resumes and work because, hey, after paying for his bay area rent, high speed internet, electricity, and of course, healthcare he was left with nothing to live on.

My heart bleeds.

Perhaps that’s the last ditch effort from oligarchs to prop up their house prices without having to move to cheaper areas so their workers can afford a living: Bring in ultra-cheap labor to keep things going, for a while.

The last gasp of employers desperate for labor is to start looking for people who are ignorant of the cost of living in a particular area. If a San Jose company offers someone living in Joplin, Missouri, a job making $60,000 per year, that is probably more than double the median income in Joplin, so the prospective employee takes the job only to discover later that $60,000 per year isn’t enough to rent a 1-bedroom apartment in a bad area, so they end up quitting shortly thereafter. At some point, the employer realizes it’s more cost effective to move the business to Joplin, which is where we are today in Silicon Valley.

Why wouldn’t they move to Joplin? As long as the company has access to a reliable power source they can operate anywhere on the planet. Many of the large cities with high cost of living grew up around ports because of international trade. When you are trading something which is transported as a digital signal there is no reason to be near a logistics hub and therefore no reason to pay extreme real estate prices.

The synergy is a big thing. After the dot-bomb a LOT of tech companies (I one I worked for in Newport Beach) tried to outsource entire engineering groups to India and China. That didn’t work as well as they expected and the company I worked for lost a lot of money and went bankrupt.

Apple and Google, for example, have engineering centers around the country and world (especially Google) but they still have the bulk of their engineering resources in the Bay Area because of the synergies of getting a large number of top-shelf engineers in the same room to attack a problem.

People have been expecting the Bay Area to empty out of tech companies since the early 80s. I remember reading a newspaper article about and getting scared. My Dad told me the media is just trying to sell newspapers, and whenever one company moves operations out of the Bay Area (as Intel famously did) 100 startups fill the vacuum.

The cost of these synergies you speak of vary in orders of magnitude as a function of evaluation per employee and the nature of the product.

Oculus probably has at most 200 important engineeers. If you take the evaluation of the company that equates to about $10 million per engineer. If the synergies increase productivity by 20% that is well worth it. Also, it is well with it for Facebook to give these 200 engineers fat bonuses to move.

Now on the other hand, take something like Yahoo, and their search engine business. Because it is relatively mundane stuff at this point the synergies would provide less than a 5% boost for the Bay Area. Also, since they haven’t been doing well, evaluation and profit per employee are rather low. For a business like this relocation outside Silicon Valley could be beneficial.

Your synopsis is spot on. Silicon Valley will always be there, but it will become a start-up incubator, not a place where mature businesses stay on an operate, at least not those that actually want to make money.

I’ve been in tech for a long time, and I can honestly say that outsourcing development isn’t a panacea. Neither is relocating to a cheaper place devoid of tech talent and trying to build a hub outside San Jose. There is a tax on efficiency when you rely on Skype/HipChat/Slack vs hallway conversation. Management has to be really intentional with communication to avoid a fragmented product. Unfortunately, most tech companies aren’t great at communication, and problems fester for a long time before finally getting addressed.

Having access to a steady stream of high quality Stanford/Berkeley grads is really tough to duplicate elsewhere. Of course, this argument was made for keeping entertainment production in LA, and that changed when states began offering significant incentives.

Give me a break! Facebook, which is on the cutting edge of technology can’t manage its business effectively IN THE SAME TIMEZONE.

On a daily basis, I interact with customers, designers, and suppliers in the Midwest, on the East Coast, in the UK, Germany, France, Italy, India, China, Japan, and the Philippines; not to mention dozens of businesses in the southland. When I interact with local suppliers its by phone or email. Who has time to get in your car and drive for a face-to-face meeting?

I find it ironic that Facebook is unable to master their own technology, and has to co-locate to maintain synergy.

Is $2B a big company still? Facebook, which as far as I can tell doesn’t produce anything of value, is “worth” many times that. And they are so good at “social networking” that they can’t even network their own business. Pathetic.

Besides, it depends on what you are buying the company for. If you are primarily buying it for the IP, then there is an argument that the people don’t matter. If, however, you are buying the company as a successful enterprise built on the efforts of ‘jelled’ teams, relocating and/or breaking up those teams is a great way to squander your investment. Just my opinion.

My point was, and remains, that the info-tech industry was built on the premise that their products allow businesses to operate seamlessly even if they are located at the four points of the compass. If it works so well for other companies, why not their own? Have they been fibbing again?

They produce software that a billion people use. In exchange for use of that software, people willingly give up personal data about themselves that advertisers find particularly useful and are willing to pay handsomely for.

Since we live in the information age, access to and control of information is the greatest currency. That’s why software companies have such high valuations for producing seemingly nothing of value.

I don’t use Facebook. If advertisers want my personal data they can pay ME handsomely for it. Same with Google.

Maybe it’s just me, but staying in contact with your “social” network 24/7 in exchange for painting a target on my chest for every advertiser to direct their sales force, seems like a bad deal. If there was a service that I could pay to keep my “social” network from contacting me 24/7, and hide all my personal info from advertisers, then THAT would be a good deal.

You could call it BlankBook. Once you login, there is no email, no Twitter feeds, no annoying banner ads, no talking heads spouting nonsense, in fact, no contact of any kind. I bet I could get 2 billion users. Advertisers could bid for your information in auctions.

Not to mention even cursory snooping of somebodies face book account will give you access to all of their online accounts. They willing place information they use to secure passwords on their profiles like their mother’s maiden name, first pets name, city they were born, etc.

What about the value of diversity? If all you want is the same perspective on an issue, then a common, collocated culture will certainly give you that. Two different sites might not do everything in the same way… but, it’s the synergy of the differences that results in innovation. If you assimilate other cultures into the collective, you lose a primary driver of creativity.

Significant restrictions on housing polices in three American cities significantly curtailed the economic growth of this country in the last half-century.

That’s right, if New York City, San Francisco and San Jose opened local housing restrictions and let the markets go as they may, the combined boost to the gross domestic product of this country would have increased by trillions of dollars in the last 50 years, research now shows.

According to this white paper released last month, “We estimate that holding constant land availability, but lowering regulatory constraints in New York, San Francisco, and San Jose cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%,” write Chang-Tai Hsieh, researcher from the University of Chicago, and his counterpart, Enrico Moretti, of the University of California, Berkeley.

From the mid-’60s into the new millennium, these three cities in particular experienced phenomenal growth, but only contributed a “small fraction” to the growth of the nation, the authors write.

It’s this finding last month that underpins the need for a cohesive federal housing policy that can supersede some of the directions taken by local municipalities.

For example, high-rise housing construction is booming in San Jose. But, odds are the rents on these homes will greatly exceed the means of the majority of the city’s workers. Without a federal mandate for assisted living arrangements, most of San Jose is effectively priced out of its own housing market.

Okay, so you don’t like the hyper-gentrification of New York City? Just do as these business owners did and move out, right?

Or join this supposed flock of multifamily investors to the smaller cities and stop making such a big deal about it.

This type of migration-based thinking would be fine, if not for the fact that the housing woes of New York, San Francisco and San Jose will continue unabated.

Therefore, the answer to fixing housing — and increasing GDP — is answering not how to stop people from leaving, but how to let more people in.

“Our results thus suggest that local land use regulations that restrict housing supply in dynamic labor markets have important externalities on the rest of the country,” the researchers conclude.

The conclusion to this is that housing reform needs to be far-reaching and national in scope. It’s obvious some policies are costing the nation some gains in wage growth and housing access.

With the presidential election coming into our view, we’re going to be watching for which candidate is willing to elevate this vital discussion.

SAN FRANCISCO (BCN) – Home prices in the San Francisco area grew faster during the past year than prices in any other U.S. city surveyed, according to a report released Tuesday.

The S&P/Case-Shiller Home Price Index shows prices in the census area that includes San Francisco, Alameda, Contra Costa, Marin and San Mateo counties grew by 10.3 percent in March compared to the same time in 2014.
Prices in the area grew faster in March than any other metropolitan area surveyed in the report.

Prices were up 3 percent in March in the San Francisco area compared with February. That’s after a 2.1 percent gain in February, according to the index.

The monthly values are not adjusted for seasonal affects. Seasonally adjusted data would make the monthly increases 1.7 percent in March and 3.4 percent in February.

Home prices also rose nationally, with both the 10-city and 20-city indexes published by S&P/Case-Schiller showing growth over both the past year and the past month. The only area that did not experience a month-over-month increase in home prices was New York City.

Interesting. During the last two bubbles in LA, the 3% MOM rise was the point where the appreciation became unsustainable. Below are the months with 3% or greater MOM rise in prices. Housing prices in SF rose by 3% or more for 3 months consecutively and by 4% or more for 2 months. This was ~14% rise in three months. Ouch. Prices have continued to climb, but at a slower rate since 2013.

Bad news, America: That’s only because guilty pleas from banks are now absolutely meaningless.

Last week, JP Morgan, Citigroup, Barclays, and Royal Bank of Scotland pled guilty to felony charges of conspiring to manipulate currency prices, and UBS pled guilty to manipulating benchmark interest rates. Regulators and prosecutors found the misconduct because the traders left extensive, written tracks — in chatrooms called “The Cartel” and “The Mafia.” James Kwak wrote that Stringer Bell from the popular television series The Wire would never have tolerated the brazen, “amateurish behavior” these traders exhibited. But why should traders bother to cover their tracks, when they know they have the absolute best clean-up crew in the business — the financial regulators and law enforcement meant to police them?

When an individual is convicted of a felony, they face years of disenfranchisement — from being denied the right to vote in many states, to facing barriers to finding work, felony convictions have real-world consequences for people. But when it comes to banks, regulators and law enforcement work together to ensure collateral consequences don’t occur.

It’s not supposed to be that way. When a bank is charged with a crime, there are certain penalties that automatically kick in. Here is what the banks were facing as a result of their felonies:

Disqualification from managing mutual funds and exchange-traded funds for RBS, JP Morgan, Citigroup and UBS.
New barriers for issuing securities. All the convicted banks are “well-known seasoned issuers,” which is a special status that lets them quickly raise capital without having to get SEC approval first. A criminal conviction automatically disqualifies a bank from this status.
No more immunity for earnings projections. Since you can’t verify the accuracy of the future, the law gives companies a “safe harbor” that allows them to make forward-looking statements anyway — without fear of lawsuits. The felony pleas would disqualify UBS, Barclays and JP Morgan from this immunity, thus subjecting all of their statements to the normal liability standards for fraud.
UBS and Barclays could no longer raise unlimited amounts of money though the sale of private securities.

How many of these consequences do you think the banks actually faced? If you guessed ZERO out of four, you are correct! The Securities and Exchange Commission waived all of the above punishments. And according to Reuters, banks demanded assurance they’d get these waivers before they agreed to plead guilty to the felonies. It’s not enough that the banks are avoiding prison — they needed a guarantee they wouldn’t see the regulatory equivalent of probation, either.

We should be in a complete meltdown right now and a more severe credit crunch than 2007-2008. We are not because the politicians are scared of the consequences of actually enforcing the law. These banks should have their stock going through a massive sell off and inter bank lending should be going through massive disruption.

This kind of impunity is what fosters populist political action. Eventually, if these transgressions are bad enough, people will rise up and take back their power. If you read the history of the late 19th century, the power of the oligarchs who controlled the various monopolies is very similar to what we see today. Ultimately, these were broken up by Teddy Roosevelt responding to political backlash against these monopolies.

Taxes don’t get politicians re-elected, it’s the campaign contributions from big-money donors that gets politicians re-elected, so the politicians continue to give tax breaks to those who donate most heavily to their campaigns.

Last week’s settlement between the Justice Department and five giant banks reveals the appalling weakness of modern antitrust.

The banks had engaged in the biggest price-fixing conspiracy in modern history. Their self-described “cartel” used an exclusive electronic chat room and coded language to manipulate the $5.3 trillion-a-day currency exchange market. It was a “brazen display of collusion” that went on for years, said Attorney General Loretta Lynch.

But there will be no trial, no executive will go to jail, the banks can continue to gamble in the same currency markets, and the fines – although large – are a fraction of the banks’ potential gains and will be treated by the banks as costs of doing business.

America used to have antitrust laws that permanently stopped corporations from monopolizing markets, and often broke up the biggest culprits.

The result has been higher prices for the many, and higher profits for the few. It’s a hidden upward redistribution from the majority of Americans to corporate executives and wealthy shareholders.

Wall Street’s five largest banks now account for 44 percent of America’s banking assets – up from about 25 percent before the crash of 2008 and 10 percent in 1990. That means higher fees and interest rates on loans, as well as a greater risk of another “too-big-to-fail” bailout.

But politicians don’t dare bust them up because Wall Street pays part of their campaign expenses.

Similar upward distributions are occurring elsewhere in the economy.

Americans spend far more on medications per person than do citizens in any other developed country, even though the typical American takes fewer prescription drugs. A big reason is the power of pharmaceutical companies to keep their patents going way beyond the twenty years they’re supposed to run.

Drug companies pay the makers of generic drugs to delay cheaper versions. Such “pay-for-delay” agreements are illegal in other advanced economies, but antitrust enforcement hasn’t laid a finger on them in America. They cost you and me an estimated $3.5 billion a year.

Or consider health insurance. Decades ago health insurers wangled from Congress an exemption to the antitrust laws that allowed them to fix prices, allocate markets, and collude over the terms of coverage, on the assumption they’d be regulated by state insurance commissioners.

But America’s giant insurers outgrew state regulation. Consolidating into a few large national firms and operating across many different states, they’ve gained considerable economic and political power.

Why does the United States have the highest broadband prices among advanced nations and the slowest speeds?

Because more than 80 percent of Americans have no choice but to rely on their local cable company for high capacity wired data connections to the Internet – usually Comcast, AT&T, Verizon, or Time-Warner. And these corporations are among the most politically potent in America (although, thankfully, not powerful enough to grease the merger of Comcast with Time-Warner).

Have you wondered why your airline ticket prices have remained so high even though the cost of jet fuel has plummeted 40 percent?

Because U.S. airlines have consolidated into a handful of giant carriers that divide up routes and collude on fares. In 2005 the U.S. had nine major airlines. Now we have just four. And all are politically well-connected.

Why does food cost so much? Because the four largest food companies control 82 percent of beef packing, 85 percent of soybean processing, 63 percent of pork packing, and 53 percent of chicken processing.

Monsanto alone owns the key genetic traits to more than 90 percent of the soybeans planted by farmers in the United States, and 80 percent of the corn.

Big Agribusiness wants to keep it this way.

Google’s search engine is so dominant “google” has become a verb. Three years ago the staff of the Federal Trade Commission recommended suing Google for “conduct [that] has resulted – and will result – in real harm to consumers and to innovation.”

The commissioners decided against the lawsuit, perhaps because Google is also the biggest lobbyist in Washington.

The list goes on, industry after industry, across the economy.

Antitrust has been ambushed by the giant companies it was designed to contain.

Congress has squeezed the budgets of the antitrust division of the Justice Department and the bureau of competition of the Federal Trade Commission. Politically-powerful interests have squelched major investigations and lawsuits. Right-wing judges have stopped or shrunk the few cases that get through.

We’re now in a new gilded age of wealth and power similar to the first gilded age when the nation’s antitrust laws were enacted. But unlike then, today’s biggest corporations have enough political clout to neuter antitrust.

Conservatives rhapsodize about the “free market” and condemn government intrusion. Yet the market is rigged. And unless government unrigs it through bold antitrust action to restore competition, the upward distributions hidden inside the “free market” will become even larger.

The inventory of Orange County homes for sale exceeded 6,000 for the first time in six months as more homeowners put their properties on the market and fewer buyers signed purchase contracts, Steve Thomas of ReportsOnHousing.com said in his latest update.

As of Thursday, Orange County sellers listed 6,104 homes in the Realtor-run Multiple Listing Service, Thomas reported. That’s a rise of 675 listings over the past two months.

Still, that’s 916 fewer listings than the same time last year. The number of homes going into escrow in the past 30 days fell slightly to 3,052 units as of Thursday.

The “market time” – or time it takes to sell all the listings on the market – increased by 18 days from a year ago, which means the market is a tad better for homebuyers. Bidding wars still are rampant, Thomas said.

“For buyers looking for a home priced below $750,000, the market is simply nuts,” Thomas said. “With competition so high, buyers are writing offers on home after home after home to no avail. The whole process right now is frustrating. The current supply of homes is too low to meet demand.”

The number of homes for sale isn’t up 27% YoY and it isn’t rising rapidly. According to Steve Thomas, the number for sale is down by 916 in April. He notoriously excludes pendings from the count, but according to the Redfin chart you linked to, the number of listings is up by about 50 units YoY which equates to less than a 1% increase. For whatever reason, their “vs. Last Year” grid says up 27% but their own data contradicts that.

I have been in tech for almost 30 years, first in Texas then SoCal. Back during the 2002 tech bust I got laid off in SoCal and was offered a job in NoCal, but I figured out quickly that my lifestyle UNEMPLOYED would be better in SoCal than employed in NoCal. So I stayed, and found another tech job down here. There aren’t as many as NoCal, but they are around.

To this day I refuse to move up there – if someone up there wants me badly enough I’ll home-office, which is what I have done for my last two jobs, looks like I’ll continue for my next gig.

So I shuttle up to Silicon Valley out of SNA a few times a month, work, interact and call on lots of clients up there, and it is just a miserable place to live. Those stock options come in very, very rarely, and even the few people I know who hit it off at LinkedIn or wherever live worse lifestyles than my brother in Texas who is a mid-level manager at a bank. He owns a new 5K sq foot home, works 9-5, coaches his kid’s baseball team, lives the typical American lifestyle. 99% of the people in Silicon Valley work like dogs 7 days a week, are on-call by email 24-7, never see their kids, and commute over an hour to live in a shack. But on paper their net worth might one day be lot higher than my brother’s! Ironically they do this so “one day” they can then live the lifestyle my brother already has (and you do understand that outside a few granolas in SF that no one has aspirations to actually retire there if they make it rich? Everyone wants to make money and leave).

This of course does not include the vast, vast numbers of foreigners in Silicon Valley, who are moving in from some crap hole in China or India, so a shack is a step up for them. People who don’t work in tech don’t really realize that there are whole “American” companies where you can wander the halls for hours and never hear native English being spoken. And before people tell me about the “STEM problem”, I know DOZENS of American born engineers who can’t get jobs in Silicon Valley because they are over 40. These guys (and, yes, they are all guys) are seen as “expensive” and “out of date”, although they would be far better employees than H1B holders (look up the recent problems of Skyworks having Chinese nationals steal their technology and start a company in China with it – which is an endemic problem). Most of these guys move out of “high tech” and into industrial or other segments, then Zuckerburg and other billionaires push on Congress to import ever more foreigners to keep costs low, drive out more American workers.

The good news is that the clever companies are catching on, and Intel has literally “miles” of fabs in Arizona, Apple and Samsung have opened up large design centers in Texas, and so on. Anyone who says there are “no engineers outside Silicon Valley” or “no start-ups outside Silicon Valley” must not work in tech since I know of start-ups and engineers all over the place. MIT has a strong start-up community, and I know of tech start-ups from Michigan to Georgia. And everyone knows that Uber’s high-tech research center is in Pennsylvania, right? Little university called “Carnegie Melon”, considered the best computer science research university in the world, happens to be right there.

So other than the few oligarch companies who can afford high wages (Apple, FB, GOOG, etc.), and ridiculously high valuation start-ups, tech is expanding away from the Valley. NoCal will never go away, of course, and it will remain the “hub”, but people shouldn’t fool themselves that it is some magic place than doesn’t respond to economics. There are plenty of tech corridors sprouting up elsewhere in the country (and as an example Research Triangle Park in North Carolina is the fastest growing tech area right now).

I thought I would share my experience this week. My husband worked for a large pharma company in Irvine before it was acquired during a hostile takeover. Many people were given notice shortly thereafter including my husband who has multiple advanced degrees in science and business. There are no companies for him to work at in Orange County making the salary he had for his title. He has had more than 4-5 companies in the Bay Area aggressively pursue him with pressure. He turned down offers for fear of cost of living. The salary would be roughly $325,000—twice what he makes now. The company urged us to meet with a realtor to go visit possible homes before turning down the offer. Upon seeing smaller homes than where we live now (and we foolishly bought in the peak but have equity as we put down 30% when we bought), we were told by the realtor that these 1.3-1.5 million dollar 3 or 4 bedroom homes would require 200-300,000 more than the asking price as that is now the norm. So the asking price is not what you can expect to pay–and yes multiple offers will be given within the first few days that much above asking. We had heart pangs seeing the houses. If he was making 500,000 perhaps it would be feasible but even at a salary offered this just seems insane! How do people live up there? Is it that people moved there years ago and bought and thus with salaries rising those people are the only ones who can afford it? I can’t understand it–even with such a high salary offered to us we are skeptical to bite.

I regular reader who lives in the Bay Area contacted me a week or two ago, and he told me their inability to find a house is going to force them to move out of the area. The high wages don’t matter if you have to spend it all on housing.